Online sales tax bill dies in House Rules Committee

Donoho plans to continue push for collection from Internet retailers

It’s apparent to Patrick Donoho that the marketplace is changing — much too rapidly to make the 250 members of the Maryland Retailers Association comfortable, he said.

What’s less clear to Donoho, the association’s president, is how and when the state tax code is going to catch up to the changing market; namely, whether the state will start collecting sales tax on Internet sales, and reduce what he sees as a competitive advantage to online retailers.

The chance to accomplish that end has passed this year, but Donoho hopes increased pressure from tight state budgets will encourage Maryland and other states to take aim at sales tax from online purchases.

“This is not going away,” Donoho said.

A bill Donoho is, and has been, championing died in the House Rules Committee. It would have allowed the state to collect sales tax from online retailers, like Amazon and eBay, who sell merchandise from vendors based in Maryland.

This would not capture tax from all online sales, but only those with Maryland ties.

Donoho estimates that by collecting sales tax from those online retailers that deal with Maryland vendors, the state could collect up to $50 million each year.

Donoho said he would bring the bill back next year.

Del. Sheila Ellis Hixson (D-Dist. 20) of Silver Spring, chairwoman of the House Ways and Means Committee, said the proposal is likely to continue to come up every year until the federal government passes legislation to enable states to collect taxes from online sales.

Similar measures have been proposed in previous years, including last year, when Gov. Martin O’Malley (D) included it in a revenue package. It was later amended out.

The committee didn’t take up the proposal this year, Hixson said, because the prospect of online sales tax was written into the governor’s gas tax bill. Should Congress pass legislation, some revenue from Maryland online sales will go toward transportation funding, thus preventing an additional 1 percent sales tax on the wholesale price of gas.

“We didn’t want to confuse anyone about the [Internet sales] tax,” Hixson said, adding that the state is prepared to start collecting as soon as Congress allows it.

If the federal government passes the Marketplace Equity Act, the state could collect $250 million to $300 million.

But Donoho said he would like to see the state take action sooner, as other states like New York and California have done, especially in light of gridlock in the Capitol.

“All my members who have an e-commerce presence collect and remit taxes,” Donoho said. “It’s about leveling the playing field.”

While eBay has not taken a position on the bill, on similar bills, the company has said small businesses using the Internet to grow should be protected.

“We’re all better off if we allow our small businesses to use the Internet to grow,” said Brian Bieron, director of global public policy for eBay, which is used by businesses big and small to facilitate online sales. “When they grow into big businesses, they have national obligations.”

Any proposal to collect online sales tax should include a sales threshold that small businesses must pass before they are required to collect.

“That’s a balanced way to go about this,” Bieron said.

The playing field is especially uneven, Donoho said, on more expensive products like fine jewelry or electronics. Maryland consumers are purchasing these products from online retailers more and more to dodge the 6 percent sales tax, meaning local merchants who sell those items are at a 6 percent disadvantage.

“Our tax law has got to catch up to the marketplace,” Donoho said.

The sales tax, Donoho said, already is a regressive tax, because it affects those with limited income just as much as it does the wealthy. When Internet retailers don’t collect, the tax becomes even more regressive, he said, because 60 percent of online purchases are made by those making $100,000 or more each year, and 80 percent are by those making $50,000 and more.

“You would think, as progressive as we are in this state, it only seems fair that you ask online retailers to collect just like everyone else,” Donoho said.